The impact of FDI on trade and growth in BRICS countries a panel data analysis

Abstract

This thesis was conducted to identify the impact of FDI on the trade and growth of BRICS nation economies, to identify the common causes and different factors associated with the common causes that affect intra-trade relationships among BRICS nations, to explain the current developments and challenges that BRICS nations face in the shifting global trade landscape, to provide insight into unexpected impacts of inner related variables that affect the overall trade dynamics while associated, and lastly to provide policy recommendations on the betterment of intra-trade among BRICS nations. Data of the study is from BRICS (Brazil, Russia, India, China, and South Africa) economies constructing 52 years of observations from 1970 to 2022, and 260 numbers of observations, these data were taken from the IMF, The World Bank, BRICS organization, and are secondary data. The research method for the study is panel data analysis with Panel Ordinary Least Square, Random Effects, and Fixed Effects analysis while constructing two different models to first identify the impact of FDI on trade in BRICS countries as well as other major factors contributing to the impacts and then to identify the impact of FDI on growth in BRICS nations. Before the research, an initial pre-estimation analysis consisting of the correlation matrix, summary stats, and stationarity test are performed to reach an optimal model for the analysis. Moreover, the heteroskedasticity test, slope heterogeneity test, and multicollinearity tests are performed to get a conclusive result and to determine an optimal model for analysis which turns out to be random effects model with maximum likelihood option while observing the Langrange Multiplier test and Bruesh-Pagan value for the appropriateness of the model. The estimation results from both models found that FDI indeed impact positively in a significant manner on the trade and growth among BRICS nations with a positive coefficient of 0.67 at a 1% significance level, Economic growth is found to be negatively impacting the trade in BRICS countries due to tackling inflationary pressures because of increased purchasing power parity caused by economic growth for BRICS countries, Interest rate, unemployment, and exchange rates impact negatively on trade and lastly tax on international trade does not have any significant impact on trade among BRICS nations. This study bears importance since post COVID-19 era and its disastrous impacts, specifically on countries with high populations like China, India, and Russia, it was much needed to research to assess the trade prosperity of BRICS countries as the world major economic force, while other factors such as empirical inconsistencies and sectoral composition of trade and similar gaps needed to be addressed.